Pre-tax profits surged 22% higher to £14.6m at Diploma, whose attractive margins stem from the supply of technical products to a customer base that values its high levels of service and support. Turnover grew 7% to £86.2m, buoyed by improved second quarter trading as well as the January 2009 acquisition of RTD Seals.
Operating margins expanded significantly to 16.9% (2009: £14.8%) and following a half in which £16.6m (2009: £6.8m) of free cash flow was generated, including net proceeds of £6.3m received from the sale of the Anachem business, Diploma upped the interim dividend by 12% to 2.8p.
Within the life sciences division, where Diploma supplies consumables and instruments to the healthcare and pharmaceutical industries, operating profits powered ahead 28% to £5.9m. Profits grew by the same percentage to £3.2m in seals, driven by prior restructuring in reaction to UK and North American downturn, as well as a full half-year contribution from the aforementioned RTD Seals business. Over in the controls segment, margins grew from 14.9% to 16.7%, receiving a boost from restructuring in the UK and Germany.
Diploma, with a strong track record of organic and acquisitive growth, now has positive trading momentum at its heels and also boasts the financial firepower for further earnings-enhancing acquisitions, with some £28.4m cash in its coffers at last count.
Having risen from their 52-week low of 116.5p, shares in this dependable, dividend paying business still offer considerable upside potential. Buy/hold.
http://www.diplomaplc.com/
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